Guide to

Decarbonization
in Banking
Guide Banking
Contents Introduction 3

I. Understanding the full scope of measurement 4

II. Measuring financed emissions 6

III. Measuring supply chain emissions 9

IV. Target setting 11

V. Collaborative reduction 14

VI. Reporting your progress 17

Lead author
Marie-Anne Vincent
VP Strategy & Regulatory

Editors

Ewa Jozefkowicz
Senior Content Manager

Nils Baqué
Carbon & Sustainable Finance Expert

Joshua Berman
Carbon & Sustainable Finance Expert

Guide to Decarbonization
in Banking 2
Introduction In an era defined by the urgent need for climate action, the global banking
sector stands at the forefront of the battle against climate change. With
nearly 60% of the world's leading banks committing to achieving net-zero
carbon emissions, the financial industry plays a pivotal role in shaping
a sustainable future.

However, a stark reality emerges from recent research—only 12% of

banks are currently on course to reduce their own Scopes 1&2 emissions
by the crucial net-zero target date of 2050.

And crucially, the challenge extends beyond banks' operational emissions,

Net Zero banking
accounting for just a fraction of their total impact. The larger and more
A bank committing to net impactful task lies in addressing Scope 3 emissions, which contribute
zero pledges to achieve
carbon balance in three key over 95% to the average bank's overall carbon footprint.
areas: its internal operations
(offices, branches, data
centers), the emissions from In this complex landscape, banks face four critical challenges
the energy it procures, and
the emissions within its value
chain, encompassing financed
1. Effectively addressing their own operational emissions.
customers through loan and
investment portfolios, as well as
supply chain emissions.
2. Measuring their full Scope 3 carbon footprint – including both financed
and supply chain emissions.

3. Empowering corporate customers to decarbonize with effective tools.

4. Distributing and monitoring sustainable products to clients, including

sustainable savings and loans.

In our guide, we offer insights into how banks can navigate these
challenges to fulfill their commitment to a decarbonized future.

We address key aspects such as:

• Selecting the right framework for measurement

• Seamlessly gathering carbon data across loan books
and supply chains
• Setting collaborative climate targets with clients
• Ensuring compliance with the latest sustainability regulations
in finance

Guide to Decarbonization
in Banking 3
Part 1
Understanding the full
scope of measurement

Key Challenge

Defining the operational boundaries for Scope 1 and 2 emissions can

be complex. Banks need to clearly delineate the activities and assets
within their control (Scope 1) and identify the sources of purchased
energy (Scope 2). Determining the extent of organizational control
and influence is crucial for a comprehensive assessment.

Overcoming this challenge requires a concerted effort by banks to

Scope 1 emissions
implement robust data collection mechanisms, establish clear operational
Scope 1 emissions typically boundaries, enhance collaboration with data providers, and stay informed
include emissions from owned
or leased buildings, owned about evolving emission factors and reporting standards. This is where
vehicles, and any other facilities the right data collection tools can have a big impact.
directly managed by the bank.

While measuring Scopes 1 and 2 is challenging, getting to grips with

Scope 3 is altogether more complex.
Scope 2 emissions

This primarily refers to

emissions from the consumption According to CDP Worldwide, a global climate disclosure system,
of purchased electricity, emissions stemming from banks' financing activities were roughly
heat, or steam. It includes
emissions generated offsite
700 times more significant than their direct operational emissions.
but associated with the bank's
energy consumption.
Financed emissions

Recently, much attention in the sector has been directed toward

managing "downstream" emissions from lending and investment portfolios
– so called, “financed emissions.” Addressing these emissions is crucial,
because financial institutions play a pivotal role in mitigating climate
change by reallocating portfolios, investing in climate measures, and
managing the emissions associated with loans and investments.

Supply chain emissions

But the importance of mitigating "upstream" emissions from

suppliers and contractors is also very significant. Accenture’s Rising
to the Challenge of Net Zero Banking report emphasizes that supply
chain emissions, often overlooked by banks, hold the key to significant
emissions reductions. Collaborating with suppliers not only aligns
with banks' sustainability objectives but also opens avenues for
cost savings and new business opportunities.

Guide to Decarbonization
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Part 1
The Net Zero Banking Alliance (NZBA)

The NZBA, representing nearly half of the global banking industry,

is dedicated to achieving net-zero emissions by 2050. Here's what
you need to know:

• Commitment to Net Zero

The NZBA aligns banks' lending and investment portfolios
with net-zero emissions, covering both financed and
operational emissions.
• Transparency and accountability
Members are required to set intermediate targets, regularly report
progress, and establish robust governance structures, ensuring
transparency in climate-related efforts.
• Collaborative engagement
Participating in the NZBA involves active engagement with clients
and stakeholders, fostering collaboration for shared climate
NZBA membership objectives and amplifying the impact of sustainability initiatives.
NZBA membership has more
than tripled in number since the
• Driving systemic change
Alliance launched in April 2021. Joining the NZBA signals your commitment to driving
At the date of its inception, systemic change within the financial sector, adopting sustainable
no bank had set a science- practices, and contributing to the broader transition to a low-
based sectoral 2030 target for
its financed emissions using carbon economy.
1.5°C scenarios. Today, over
half of NZBA banks have set
such targets. By becoming a part of the NZBA, you position your bank at the
forefront of collective climate action. More details on the NZBA
All global banks are encouraged
to join. reporting targets can be found in the ‘Targets’ section below.

Guide to Decarbonization
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Part 2
Measuring Financed
Emissions

Key Challenge

Banks recognize that carbon emissions data is essential to meeting

their Net Zero carbon pledges. However, they often struggle to get
reliable data from across their loan portfolio.

A recent report from Accenture has found that the majority of banks
Banks' financed emissions
use emissions data with limited granularity for significant portions of
The European Central Bank their portfolios, enabling only intermediate or high-level measurements.
has found that the majority of
banks’ financed emissions often Only a handful of banks possess a detailed understanding of the carbon
come from a small number footprint associated with funded clients and projects at a granular
of large counterparties, which
increases their exposure level. This includes factors such as activity, location, energy sources,
to climate-related risks. or other characteristics that may be correlated with emissions.

PCAF Measurement Framework

The Partnership for Carbon Accounting Financials (PCAF) has set

a universal standard for accounting and reporting, defining how
emissions financed through different asset classes, such as listed
equity, corporate bonds, business loans, unlisted equity, project
finance, commercial real estate, mortgages, and motor vehicle loans,
should be measured and disclosed globally. Many major banks now
incorporate PCAF guidance into their disclosures, showcasing broad
support for this approach within the banking industry.

Mapping your portfolio

To effectively address emissions within your portfolio, it's crucial to

create a clear map, considering various aspects such as loan books,
equities, bonds, and more. This comprehensive mapping allows for
a structured approach, enabling the prioritization of high-impact areas
that contribute significantly to emissions.

Collaborate closely with asset managers and investment professionals

to gain detailed insights into the underlying assets and entities within
different portfolios. By delving into specific portfolios like loan books,
equities, and bonds, you can tailor your decarbonization strategies more
precisely to each asset class, ensuring a more effective and nuanced
approach across your entire portfolio.

Guide to Decarbonization
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Part 2 Collecting the right data

Improve the accuracy of your emissions evaluation with a step-by-

step strategy. Start by looking at your whole portfolio by industry to
spot sectors with higher emissions. Then, go deeper into each sector,
focusing on major emitters or loans.

Follow the Pareto principle—begin with 4 or 5 key sectors, set specific

goals, and then zoom in on individual emitters. This approach is widely
used by banks which are part of the Net Zero Banking Alliance (NZBA).
It guarantees a thorough analysis, reduces the risk of misjudging baseline
data and ensures precise target setting.

Acquiring accurate data on the underlying assets of your loan book is

a crucial step in comprehending your portfolio's environmental impact.
Leveraging tools like PCAF, which details how to calculate the attribution
factor based on financial data and the carbon footprint of underlying
assets, aids in estimating the carbon emissions of your portfolio
companies. However, it's essential to note that banks often begin with
sector-based revenue estimates, leading to potential inaccuracies in
setting precise decarbonization targets due to limited data granularity.
These data-driven insights empower you to make informed decisions
and drive positive change within your portfolio.

Automated data collection

ESG platforms can help

automate the gathering of
comprehensive environmental
data from various sources,
including customers and
financed entities.

This efficiency enhances

accuracy and transparency
in assessing the full extent
of your bank's indirect
emissions, supporting a
more thorough evaluation
of its environmental impact.

Guide to Decarbonization
in Banking 7
Part 2 The Sweep methodology
Sweep for Finance is a unified platform to capture all the carbon data
from across your portfolio in a single location – helping you to efficiently
achieve your climate targets.

We can help you:

1. Map your entire portfolio and identify your emission hotspots.

The aim is to focus on your top emitters – 20% of them are likely
responsible for 80% of your total Scope 3 footprint.

2. Connect with your business banking clients or loanees in order

to collect more granular data. We can propose several solutions
to engage with your network:

• Help your corporate clients to start their climate journey for

free, by answering a carbon survey. This will create a free account
on the Sweep platform and provide a carbon footprint in a GHG
Protocol format.
• Support your corporate clients to go further in their climate strategy
by proposing a Sweep family offer. This would involve upgrading their
free plan to a corporate plan with access to emissions measurement
and reduction.
• Enable your corporate clients to define their climate targets and
share these targets with you in order to achieve common climate
goals and trajectories.

We know that when it comes to decarbonization, it’s not easy to

drive engagement, which is why Sweep supports you to raise climate
awareness among your clients and your staff through a comprehensive
eLearning platform, on- and offline events, dedicated newsletters
and more.

Guide to Decarbonization
in Banking 8
Part 3
Measuring Supply
Chain Emissions

Navigating the complexities of supply chain emissions, banks face

challenges in identifying numerous firms within their networks and
accurately measuring emissions from diverse suppliers.

Mapping your supply chain

As with financed emissions, mapping your supply chain contributors

is crucial as it gives you a clear picture of the activities, processes,
and systems involved in the entire chain. It also helps you identify
your top emitters.

With a clear map (which we refer to as a ‘Tree’ in Sweep) you’ll be able

to visualize exactly what data you’ll need and from whom. You can also
use this to conduct a baseline measurement of your emissions using
the data that you have at your disposal.

Focusing on the most strategic suppliers

Focus on your strategic suppliers first (using the above-mentioned Pareto

Principle), and get them on board by making more exact data collection
as simple as you can. Provide your procurement and sustainability teams
tools to automate data collection for purchased goods and services.
Empower them to send surveys to suppliers to collect missing data.

The importance of
supply chain emissions

Accenture’s Rising to
the Challenge of Net Zero
Banking report emphasizes
that supply chain emissions,
often overlooked by banks,
hold the key to significant
emissions reductions.

Collaborating with suppliers

not only aligns with banks'
sustainability objectives
but also opens avenues
for cost savings and new
business opportunities.

Guide to Decarbonization
in Banking 9
Part 3 The Sweep methodology
If you don’t have exact supplier-based data at your disposal, don’t
worry. You can still obtain a baseline measurement for your supply chain
emissions. Our platform is specifically designed to suit suppliers with
varying levels of data maturity.

We can help you:

1. Model your supply chain using benchmark data and identify

your emission hotspots. We use industry averages and spend-based
data as a starting point.

2. Send each supplier a straightforward climate survey

This is the first step to embarking on their own climate journey and
tracking the impact of their actions. Note that you can adapt our climate
surveys to make them suited to your needs.

Guide to Decarbonization
in Banking 10
Part 4
Target Setting

An important next step is setting collaborative emission reduction

targets. This will provide a clear goal for your portfolio companies
and suppliers to work towards, and help to measure their progress.

You can use science-based targets (SBTs) as a guide to set ambitious

and achievable targets that are aligned with the Paris Agreement.

It's worth setting separate targets for your Scope 1, 2, and 3 emissions,
either absolute or intensity-based.

Other frameworks SBTi Targets for Banks and Financial Institutions

The Net Zero Investment
Framework and the Transition
Pathway Initiative are two The Financial Sector Science-Based Targets Guidance by SBTi
other frameworks which set
action-focused roadmaps for
empowers financial institutions, such as banks, investors, insurance
banks to align their financing companies, and pension funds, to establish science-based targets
activities with the goals
aligning with the Paris Climate Agreement in their lending and
of the Paris Agreement.
investment endeavors.

The guidance outlines steps for FIs to:

• Establish a comprehensive headline target detailing the

inclusion of asset classes and the proportion of their overall
portfolio covered;
• Set targets for individual asset classes, specifying the
method employed and presenting specific target language;
• Detail the actions to be undertaken to achieve both headline
and asset class–specific targets.

Absolute emission targets

Absolute emission targets refer to a specific amount of emissions that

your bank commits to reducing or avoiding over a given period of time.
This target is set in terms of the total amount of emissions and isn’t
dependent on the growth of your business, or the profits made in
a given year.

Example: Bank A pledges to reduce its financed emissions by 40%

compared to its baseline by 2030.

Guide to Decarbonization
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Part 4 Intensity-based emission targets

Intensity-based emission targets refer to a reduction in emissions

per unit of economic activity. They allow firms to set emission reduction
targets while at the same time accounting for growth or business
changes (such as mergers or acquisitions).

Example: Bank B pledges to remove 5 metric tons of CO2 per

$1 million invested.

Net Zero Banking Alliance targets

If you sign up to the NZBA, you commit to aligning your lending and
investment portfolios with net-zero by 2050 and set science-based
emission reduction targets for 2030 or sooner for the most carbon
intensive sectors in your portfolio. This must be done within 18
months of joining the alliance.

Absolute or
intensity targets?

While absolute targets

align with global climate
objectives, they may not
always reflect the complexities
of individual businesses.

Intensity-based targets offer a

flexible alternative that considers
growth and operational realities,
fostering sustainability without
compromising expansion.
However, there is also an
element of rigidity.

In reality, it’s useful to set

both absolute and intensity
targets simultaneously.

Guide to Decarbonization
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Part 4 The Sweep methodology
Sweep enables you to take the lead on your decarbonization strategy,
and support the transition to a net zero economy.

Using our platform you can easily set targets at different levels:
for portfolio companies, funds, or entities, and cascade the fund
temperature alignment back to them.

The network approach is key to collaborative reduction.

Guide to Decarbonization
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Part 5
Collaborative reduction

Key Challenge

Banks face the significant challenge of aligning their loan portfolios

and supporting their suppliers and customers on their own
decarbonization journeys. This task is virtually insurmountable
without the right tools for the job.

In the pursuit of decarbonization, banks can lead the way by leveraging

Data driven insights
their capital resources and close corporate ties to encourage companies
In the pursuit of effective in their lending and investment portfolios to substantially reduce
decarbonization, leveraging
deep insights and modeling greenhouse gas emissions.
reduction pathways is
essential. A robust tool can
provide you with an at-a-glance As banks transition into becoming trusted advisors and partners in their
view of carbon hotspots customers' journey to net zero, they gain a competitive edge in building
and the potential impact
of specific reduction levers a stronger, more diverse, and resilient business.
on your trajectory.

To kick start collaborative reduction efforts, banks can:

Collaborate on Net Zero transition

Work closely with corporate customers, providing expertise,
services, resources, and finance to facilitate their transition to net
zero. This requires a fundamental shift in how banks interact with
clients, emphasizing trust-building, sharing best practices, and assisting
in ESG data gathering, analysis, and reporting. Collaborative efforts
should extend beyond financial support, fostering a holistic approach
to sustainability through joint initiatives and knowledge sharing.

Train employees
Equip relationship managers with climate science expertise, turning
them into 'climate advisors' capable of guiding corporate customers
through the decarbonization process. This involves comprehensive
training, education, and upgrading information systems to support
industry-specific climate science skills. By empowering employees
with a deep understanding of climate-related challenges, banks can
effectively drive sustainable practices within their organizations
and among their clientele.

Integrate climate risk assessment

Implement robust climate risk assessment practices across lending
and investment activities. This involves incorporating climate-related risk
factors into decision-making processes, ensuring that banks thoroughly
assess the environmental impact of their financial activities. By integrating
climate risk assessments, banks can better align their strategies with the
goals of the Paris Agreement and proactively manage risks associated
with climate change, fostering a more sustainable financial sector.

Guide to Decarbonization
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Part 5 Offer green products and services
Develop a comprehensive range of sustainable offerings that incentivize
and enable customers to enhance their sustainability, moving beyond
competitive pricing to provide tailored 'green glove' solutions and
partnerships. This involves creating innovative financial products that
align with customers' sustainability goals and actively contribute to the
development of a green economy.

Sustainability-Linked Loans

These loans tie the interest rates and terms to the borrower's
achievement of predefined environmental, social, or governance
(ESG) performance targets. By incentivizing borrowers to meet
stringent sustainability criteria, such as reducing carbon emissions
or enhancing social responsibility, your bank can actively contribute
to a low-carbon economy.
Sustainability-linked loans not only integrate environmental
considerations into the financial decision-making process but also
encourage clients to prioritize decarbonization initiatives.

Guide to Decarbonization
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Part 5 The Sweep methodology
Sweep can help you engage securely with your loanees in order
to collect the ESG metrics linked to any SLL facility.

Guide to Decarbonization
in Banking 16
Part 6
Reporting your progress

When it comes to reporting, one of your key KPIs will be your loan
Avoiding greenwashing
portfolio’s and suppliers’ progress on their Scope 3 emissions. This will
Exercise caution in your require you to share your reporting tool with each of them and to regularly
messaging, as clients are
adept at spotting greenwashing. monitor progress against targets. Each individual company target will
Given the evolving regulatory fit into your own overall climate target.
landscape, ensure your
claims align with substantial
actions taken. Climate classification

Some banks choose to classify their loans based on their progress

towards decarbonization. For example, you might choose to use
a scale like this:

Level 1
Loans that have achieved net zero for Scopes 1 and 2, and whose
Scope 3 reduction trajectories are aligned with a 2°C max increase
in temperature.

Level 2
Loans whose Scope 1 and 2 trajectories are aligned with a 2°C
max increase in temperature, with Scope 3 calculations 80%
based on physical data.

Level 3
Loans whose Scope 1 and 2 trajectories are aligned with a 2°C
max increase in temperature, with Scope 3 calculations 60% based
on physical data.

Level 4
Loans that have calculated their Scope 1 and 2 emissions based
on physical data and their Scope 3 carbon footprint based on
spend-based data.

Level 5
Loans that are using a spend-based approach across all scopes
to calculate and act on their carbon footprint.

Such classifications enable you to more easily demonstrate progress

against targets.

E.g. In January 2020, we had 10% of loans at level 3, 20% at level 4

and 70% at level 5. But in January 2023, we have 5% of loans at level 1,
15% at level 2, 30% at level 3 and the remainder at level 4.

Guide to Decarbonization
in Banking 17
Part 6
What’s the temperature of your portfolio?

To help banks align their investments with the Paris Agreement,

the SBTi developed the concept of a finance portfolio temperature.
This is a metric that calculates the average temperature increase that
would result from the greenhouse gas emissions associated with a
given investment portfolio. The finance portfolio temperature allows
investors to evaluate the climate impact of their investments and
to set targets to reduce the temperature increase associated with
their portfolios over time.

Financial sustainability regulations

SFDR application

It's important to note that the Your company’s financed emissions reports are likely to be
SFDR applies to all financial
institutions that market their requested by a number of stakeholders, including customers, and
products within the European analysts. Reporting is also essential for complying with regulations.
Union, regardless of their
geographical location. These depend on your region and scope of operations.

The number of countries with mandatory disclosures relating to financed

emissions is on the rise.

Here are the key ones that you should be aware of:

Europe

The Sustainable Financial Disclosure Regulation (SFDR), led by

the European Commission, sets out sustainability-related disclosure
requirements for financial market participants, including asset managers,
investment funds, insurance companies, and pension funds, that provide
financial products or services within the EU. The regulation requires
these entities to disclose information about the environmental, social,
and governance (ESG) risks and impacts of their products, including
how they integrate sustainability into their investment decisions
and how they communicate about sustainability to their clients.

Guide to Decarbonization
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Part 6 The SFDR aims to create a more sustainable financial system by
providing investors with more information about the sustainability of
their investments and promoting more sustainable investment practices
by financial market participants.

The Corporate Sustainability Reporting Directive (CSRD) was adopted

by the European Commission in late 2022. The directive will require
companies operating in the European Union (EU) to disclose non-financial
information related to sustainability topics. The application of the rules
will be phased in gradually between 2024 and 2028, depending on
the size and type of the company.

Large public-interest companies with over 500 employees, who are

already subject to the existing non-financial reporting directive, will need
to comply with the new requirements from 1 January 2024, with their
reports due in 2025.

Large companies that are not currently subject to the non-financial

reporting directive, but have more than 250 employees and/or €40
million in turnover and/or €20 million in total assets, will need to comply
with the CSRD from 1 January 2025, with their reports due in 2026.

Listed small and medium-sized enterprises (SMEs) and other

undertakings will need to comply from 1 January 2026, with their
reports due in 2027. SMEs will have the option to opt-out until 2028.

Note that financial organizations that are subject to other EU regulations,

such as the Sustainable Finance Disclosure Regulation (SFDR), may be
exempt from certain CSRD requirements, provided that they comply with
their existing disclosure obligations under these regulations.

UK

The UK Sustainable Disclosure Regulation (SDR), led by the UK

Financial Conduct Authority (FCA), aims to provide investors with more
comprehensive, consistent and comparable sustainability information
from issuers and investment managers. It requires these organizations to
disclose information related to the environmental, social, and governance
(ESG) risks and impacts of their investments and activities.

US

In the US, the Securities and Exchange Commission (SEC) requires

publicly-traded companies, including financial organizations, to disclose
material climate-related risks and impacts in their financial filings. This
includes the potential physical risks associated with climate change, as
well as the transition risks related to changing market conditions, new
regulations, and technological innovations. Note that financed emissions
should be included in the disclosure.

Guide to Decarbonization
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Part 6 The Sweep methodology
Sweep enables you to respond to key stakeholder requests
with easy-to-use climate and ESG reporting tools.

Analyze your financed emissions with market-standard metrics and

flexible reports that scale with you (including the SFDR, CSRD and more).

Guide to Decarbonization
in Banking 20
 A collaborative approach is key

If we could leave you with one leading thought, it’s that effectively
engaging your entire portfolio and supply chain in your decarbonization
strategy is key to achieving your climate targets. It may seem like
a daunting task, but with the right tools to automate data collection
and ease of collaboration, you’ll soon be on the right path.

Ready to get started on a smoother road to decarbonization?

We’re here to support you at every step.

Our free plan lets companies measure their emissions in Sweep
– so you can invite your customers. And once their measurements
are in Sweep, we can help them get further along their own
carbon track.

Get in touch today

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Guide to Decarbonization
in Banking 21
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